In a proposed move that could shake up the way the industry looks at its assets, Windstream today announced plans to spin off some assets into a Real Estate Investment Trust (REIT). When I saw the headline, I figured it was their data center assets & business al la Equinix etc, but it is not about colo at all. They are actually looking to put their fiber and copper network assets into a publicly traded REIT.
They already have their "private letter ruling" from the IRS in hand, something that can take a while. Basically, Windstream wants to spin off its fiber and copper network assets and other related real estate into a publicly traded, independent entity. Windstream would then have a long term triple-net exclusive lease, paying some $650M per year to the new entity.
Windstream's debt would be reduced by some $3.2B, helping them deleverage. Windstream's CFO Tony Thomas would move over to its CEO, while director Francis X. "Skip" Franz would be the chairman of the board. The new REIT would have some 25 employees. Windstream would still be actually operating the assets, it just wouldn't own them -- at least I don't think a REIT with 25 employees is going to be doing truck rolls.
I'm still wrapping my head around this one. While REITs are largely about maximizing tax benefits, I wonder if adopting this new structure will have longer term implications for how Windstream looks at network investments. Just how independent would it turn out in practice? And I wonder if others may follow the same path if Windstream gets the IRS green light.
Windstream says that the REIT may be able to expand and diversify via acquisition. Indeed, I think one of the main reasons Windstream hasn't been more acquisitive lately is that the multiples of its legacy business make it hard to justify paying for fiber assets at current prices. The new entity might approach that problem from a different, more flexible perspective.
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